Intel delivered strong third-quarter FY2026 results that exceeded market expectations, with revenue of $16.5 billion up 21% year-over-year and adjusted EPS of $0.52, beating the $0.40 consensus by 30%. However, the company's Q4 revenue guidance of $15-16 billion fell short of analyst expectations of $17.08 billion, with the midpoint of $15.5 billion representing a 9% shortfall compared to the current quarter's performance. Despite the positive Q3 results, Intel's stock plunged over 23% in after-hours trading, with shares hitting their lowest level since mid-April at $77.96 before narrowing to a 15.33% decline. The guidance miss reset investor expectations, particularly as the stock had gained more than 150% year-to-date heading into the print.
The Data Centre and AI segment emerged as the primary growth driver, generating $7.3 billion in revenue, representing the fastest data-center growth in 15 years and a 78% increase year-over-year. Operating profit surged dramatically from $964 million to $3.039 billion, with Chief Financial Officer David Zinsner noting this as the company's strongest data center revenue growth in 15 years. CEO Lip-Bu Tan emphasized that CPU demand remains strong, with the top priority being to release more supply to meet robust demand for Xeon processors. The foundry business also showed robust performance with $6.7 billion in sales, an 58% increase year-over-year, reflecting the increasing deployment of artificial intelligence services. However, the Intel Products segment, which includes PC and data center processors, generated $15.4 billion, slightly below estimates, as PC chip sales of $8.1 billion missed expectations while data center sales topped $7.3 billion.
The Client Computing and Physical AI segment remained relatively weak, with revenue of $8.097 billion, down 5% year-over-year, and operating profit falling from $2.694 billion to $2.285 billion. Intel is grappling with severe challenges in the personal computer market, with CEO Lip-Bu Tan attributing weakness to memory shortages and surging component prices that have cut into PC shipments and reduced user demand. Global PC shipments declined 4% in the second quarter from a year earlier due to soaring costs for memory and other components, according to Counterpoint Research. The company projects the PC market slump will persist through at least the first half of 2027, with a 10% decline expected next year following a 12% slide in 2026. The PC chip sales of $8.1 billion specifically missed expectations, reflecting the ongoing pressure in the consumer market.
Intel faces significant manufacturing bottlenecks that have capped its ability to capitalize on growing demand for data-center chips, despite pouring money into manufacturing expansion. The company warned that near-term challenges include manufacturing supply shortages, the unprecedented memory crunch, and resulting softness in PC demand. CEO Lip-Bu Tan expressed disappointment about not meeting strong customer demand in the current quarter, stating "I'm disappointed that we were not able to meet strong customer demand in this quarter." The deadly October explosion at Intel's Israel plant, which killed two workers and seriously injured a third, will cost the company about $600 million in lost revenue over two quarters and reduce supplies of AI server chips to cloud customers. Management cited declining PC demand and the impact of the Israeli facility incident as key factors behind the conservative Q4 guidance.
The gloomy outlook reverberated across the chip sector, with Nvidia, Broadcom, AMD, Micron, Qualcomm and Arm Holdings' US-listed shares falling between 1% and 6% in extended trading. Intel's warning about heavy cash burn due to the faltering PC market, bottlenecks in manufacturing and heavy spending on expanding production has raised concerns about the broader semiconductor industry's ability to navigate current challenges. The company expects the deadly October explosion at its Israel plant to erase roughly $600 million in revenue over two quarters and reduce supplies of AI server chips to cloud customers, while also facing margin pressure with adjusted gross margin expected to fall to 38% in Q4.
